Glossary

glossary

AAR · Annual Return · Average Annual Return · Assets · Bearish / Bear market · Beating the market · Bullish / Bull market · Buy-and-hold · CAGR · Cash positions · Compound Return · Day trading · Double digit · ETF · ETN · QTD · RSS · Sharpe ratio · Single digit · Stock portfolio · Stock trading strategy · Swing trading · Trading decision · Trading model · Trading signal · Trading strategy · Triple digit · Types of investors · US markets · UVXY · VIX · VIX ETFs · VIX ETNs · Volatility · XIV · YTD


Introduction

This page describes in short who These Dutch Guys are, and what they stand for. But most of all it serves the purpose of clarifying, in plain English, all the technical financial terms used in this blog. The idea is that for those who have no affinity with the financial world whatsoever, it will at least help to get a better understanding of the terminology used in our blog articles.


How it started

These Dutch Guys are Tim and René from the Netherlands. Together, they developed a stock trading strategy that beats the market by a sizable amount. We are talking about triple digit annual returns year over year, on average. Their trading model, that focuses solely on US markets, goes by the name of “White Chapel“. It is a psychology-driven approach to the swing trading of two opposite volatility (VIX) ETFs. The model measures waves of investor sentiment, and anticipates to upcoming trend changes therein.

Up until March 2017, White Chapel consisted of only one strategy: one with a rather high return/risk profile. It invested in two opposite volatility (VIX) ETFs in a back and forth manner: UVXY, which rises when volatility rises, and XIV, which rises when volatility eases. A timely tactical repositioning between these two ETFs was crucial for its success. When increasing market volatility was expected, the total of assets would be invested in UVXY ETFs. White Chapel calls this “to go volatile”. When volatility was expected to decrease, all assets would be invested in XIV ETNs. This is what White Chapel calls “to go inverse”.

Starting 6 March 2017, White Chapel embodies four different versions, each with its own return/risk profile. In order of decreasing potential risk and return, these are: Danny Daredevil, Adventurous Anny, Solid Suzy and Lazy Larry.

The most ‘daring’ of the four, Danny Daredevil, is the continuation of the approach that was in use up until that date, albeit with minor adjustments. From the four models, Danny Daredevil is the one with the highest return/risk profile. As it keeps cash positions at the lowest level possible, it is the only model that exposes itself to the (potentially high) risk and the (potentially high) return of keeping UVXY ETFs.
Adventurous Anny is essentially the same as Danny Daredevil, except that it uses a lower return/risk profile by holding cash positions when Danny Daredevil switches to UVXY ETFs.
The other two versions, Adventurous Anny and Solid Suzy, can be seen as the ‘least risky’ models, but also with lower (yet still high) potential returns. For a more in-depth explanation of their differences, see our Versions page.

All of the above strategies are not for the faint of heart. Instead of a straight line upward, they look more like a bumpy road with ugly drawbacks as well as (on average) bigger advances. This makes these models less suitable for investors with a limited time window.


Blogging

In June 2016, These Dutch Guys decided to start a public blog and to publish each and every trading decision of White Chapel. This means, that everyone with an internet connection can follow (and replicate!) White Chapel‘s trading signals, without having to subscribe to, or pay for any information provided in the blog. The blog can be seen as a real life investing adventure, that is at least as thrilling for its readers, as it is for These Dutch Guys themselves. One reason to start this blog, was to show that their intentions, approach and methods are anything but shady, questionable or of a dubious character in any way, shape or form. On a day-by-day basis, they communicate in a clear and transparent way on how their strategy unfolds in real life. Every trading action they perform is explained, illustrated, and placed in the context of current developments in the financial markets by Tim (and, starting 19 June 2017, on Mondays by René). And lest not forget to mention the cherry on the pie: every blog post is concluded by a personal note, be it from Tim, Rene or the two of them.


Questions? Ask us.

Do you miss one or more topics that you would like to see explained? If so, please let us know by filling out the contact form below. These Dutch Guys strive to keep this page as up-to-date as possible, and any feedback is welcomed and appreciated! Comments on this page will not be published, but only used to keep it updated.


Disclaimer

Please take note of our disclaimer. It can be read here.


The jargon


AAR
The abbrevation ‘AAR’ literally means ‘Average Annual Return’. For an explanation, check ‘Average Annual Return’ at this page. These Dutch Guys report the Average Annual Return up to the date of posting as a percentage in the column ‘AAR’ in every blogpost.


Annual Return
This is the percentage of the yearly increase (or decrease, for that matter) in value of an investment. So an investment that grows from $10,000 to $12,500 during a period of one year, has a (positive) annual return of 25%: $10,000 + (25% * $10,000) = $12,500.


Average Annual Return
This is the percentage used when reporting the historical annual return, over any given period (not necessarily being exactly one year). If a start capital grows from $10,000 to $12.100 in let’s say two years time, the Average Annual Return is 10% ($10,000 * 1.1 *1.1). This is not to say that the growth was exactly 10% in both years: it is theoretically possible that the return over the start capital was zero over the first year, and 21% over the second year. Therefore, we are talking about the Average Annual Return. Click here for an explanation of the formula

100 * ( ( ( start capital + gain ) / start capital ^ ( 1 / number of years ) – 1 )
Based on the example above, the formula is calculated as follows:
100 * ( ( ( 10,000 + 2,100 ) / 10,000 ^ 1/2 ) – 1 ) =
100 * ( ( 1.21 ^ 0.5 ) – 1 ) =
100 * ( 1.1 – 1 ) =
100 * 0.1 = 10% Average Annual Return.


Assets
When These Dutch Guys talk about assets, they refer to the total value of one’s cash- and portfolio positions.


Bearish / Bear market
Investors are fearful and more willing to sell than they are to buy. Because the stock market works on the basis of supply and demand, this inevitably results in decreasing stock prices. This behaviour, or sentiment, is called ‘bearish’. Exaggerated bearish behaviour can result in stock market corrections, or even worse: crashes. Bear and bull markets refer to a long term trend. There are bearish phases in bull markets, and vice versa.


Beating the market
This is another way of saying that the results of your trading are better than that of the market average. The S&P 500 index is one of the most popular benchmarks to calculate the market average. So, if your returns are higher than the percentage return of the S&P 500 index, then you beat the market.


Bullish / Bull market
Investors are confident and more willing to buy than they are to sell. Because the stock market works on the basis of supply and demand, this inevitably results in increasing stock prices. This behaviour, or sentiment, is called ‘bullish’. Exaggerated bullish behaviour can result in stock market bubbles. Bear and bull markets refer to a long term trend. There are bullish phases in bear markets, and vice versa.


Buy-and-hold
See: Types of investors


CAGR
See: Compound Return


Cash positions
This is “money doing nothing”, which you don’t invest in stocks or bonds, but is instead held in cash (paper money, or coins) and/or in a bank (savings) account. Some of our models hold cash positions during risky times as part of their strategy. Other ‘more daring’ models always invest in ETFs/ETNs, thus keeping cash positions at an absolute minimum.


Compound Return
This is the percentage that stands for the cumulative effect, over a period of time, of a series of gains or losses on a start capital. Usually the compound return is expressed in annual terms. This means that the percentage of the compound return stands for the annualized rate at which the start capital has compounded over the given period. The compound return, expressed in annual terms, is also known as “compound annual growth rate” (CAGR). So if you start with an investment of $10,000 and it grows to an amount of $20,736 in 4 years time, the compound annual growth rate is 20% ($10,000 * 1.2 * 1.2 * 1.2 * 1.2).


Day trading
See: Types of investors


Double digit
Any number or percentage from 10 to 99.


ETF
An ETF looks like a stock, and trades like a stock, but isn’t. ETF stands for “Exchange-traded Fund”. It is a security that can be bought and sold, which tracks (follows) an underlying index, such as a major index like NASDAQ, S&P 500 or Dow, which it aims to replicate.


ETN
An ETN is an exchange-traded note. This is an unsecured debt obligation, and there is a credit risk involved when investing in it. At first sight, an ETN looks just like an ETF. When trading it, you won’t notice any difference. But under the hood, it is totally different. Whereas the ETF is in fact a fund that holds the stocks (or bonds, future contracts, other commodities) it tracks, ETNs have more in common with bonds.
ETNs do not rely on the buying and selling of the underlying assets. Instead, it simply pays investors based on the price of the asset or index it tracks. Being unsecured debt notes, not issued by an institution, the credit rating of the underwriter of the ETN (generally a bank) should be considered an important metric to anyone investing in ETNs.


QTD
The abbrevation ‘QTD’ literally means ‘Quarter To Date’. It refers to the period beginning the first day of the current quarter up to the current date. These Dutch Guys report the return over the current quarter as a percentage in the column ‘QTD’ in every blogpost.


RSS
The abbrevation ‘RSS’ stands for ‘Return Since Start’. It is the return from the start date of the investment up to the current date. These Dutch Guys report this return as a percentage in the column ‘RSS’ in every blogpost.


Sharpe ratio
The Sharpe ratio is a way to examine the performance of an investment by adjusting for its risk. It is calculated by dividing the excess average return of an asset through its standard deviation. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return. A Sharpe ratio of 1 is considered to be good, a Sharpe ratio of 2 very good.


Single digit
Any number or percentage from 0 to 9.


Stock portfolio
This stands for (the value of) your stock positions.


Stock trading strategy
See: Trading strategy


Swing trading
See: Types of investors


Trading decision
When you invest in stocks, you have three options: 1. you buy stocks; 2. you sell stocks; or 3. you do nothing (you wait). Every single one of these three options is called a “trading decision”. This explains why a stock investor is always working, since he or she is continuously making trading decisions (for the most part decisions of the third kind).


Trading model
A trading model is a consistent set of rules, typically in the form of a computer program or algorithm, that aims to provide traders with trading decisions that result into the highest possible returns on investment. A trading model typically uses historical stock market data to identify patterns and then tries to forecast future movements.


Trading signal
A trading signal is a call to action, usually given by a trading model, to execute a trading decision of the first or second kind (to buy and/or to sell stocks) at a given time.


Trading strategy
When you invest, you usually buy and sell your securities not just at random. You should have at least an idea of what to buy (or sell), what not to buy (or sell), and when. This may be your own idea, or that of someone else (your dad, a friend, an advisor, etcetera) but this idea is what you should base your trading decisions upon (and stick to). The better this idea, the higher the potential return. Any stock trading idea that consists of a certain set of rules to follow, is called a “trading strategy”. Of course, as there are good and bad ideas, there are good trading strategies and bad trading strategies (the latter These Dutch Guys refer to as “trading stragedies”).


Triple digit
Any number or percentage from 100 to 999.


Types of investors
Investors can be globally divided into three groups: day traders, swing traders, and buy-and-hold investors. Day traders buy and sell stocks every trading day. Buy-and-hold investors are long-term traders: they buy stocks and hold them for a long period of time. They are not bothered by drawbacks along the way, since the long-term trend is usually upward (in case of a well-chosen portfolio). Swing traders are in between these two categories, when it comes to their trading frequency: they hold onto their positions for at least one, but typically for several days or even weeks, in order to take profit from price changes (‘swings’). These Dutch Guys fall into the category of swing traders.


US markets
US markets, or US stock markets, is a general term referring to all stock market trading that takes place in the United States of America. The main American stock exchanges are the New York Stock Exchange and the NASDAQ.


UVXY
UVXY is a traditional ETF. It holds VIX futures. As a rule of thumb, UVXY mimics the movements of the VIX: it goes up when the VIX goes up, and vice versa. Preferably, a volatility based trading strategy should trade the VIX itself. But since the VIX is not a tradable security, we (have no other option than to) base our trading strategy upon the available VIX-derivatives, such as UVXY (when VIX is expected to go up) and XIV (when VIX is expected to go down). [ISIN: US74347W2391] Click here for the UVXY Fund Summary

The Ultra Fund seeks daily results that match (before fees and expenses) two times (2x) the daily performance of the S&P 500 VIX Short-Term Futures Index. The index seeks to offer exposure to market volatility through publicly traded futures markets and is designed to measure the return from a rolling long position in the first and second month VIX futures contracts.


VIX
The VIX is the Chicago Board Options Exchange (CBOE) Volatility Index. Also known as the “investor’s fear gauge”, it reflects the expectation of the market’s 30 day volatility. The VIX is calculated using the implied volatilities of S&P 500 index calls and put options. The VIX is a commonly used indicator of market risk: a rising VIX reflects an increase in the market’s uncertainty about the near-term direction of stock prices, whereas a decreasing VIX suggests the opposite. In short, you might say that when the VIX shoots up, investors are getting nervous (or even panicking, depending on how steep the curve is). And when the VIX is low, they feel confident.


VIX ETFs
ETFs/ETNs that hold the actual VIX don’t exist. Therefore, derivatives in the form of VIX ETFs/ETNs are the ‘next best thing’ for those investors who want to follow the VIX.
VIX ETFs are ETFs that track front and second month futures on the VIX index.


VIX ETNs
ETFs/ETNs that hold the actual VIX don’t exist. Therefore, derivatives in the form of VIX ETFs/ETNs are the ‘next best thing’ for those investors who want to follow the VIX.
VIX ETNs do not have to hold actual VIX futures. Instead, they just promise to pay the holder the returns of a VIX futures index.


Volatility
This is the relative rate of the up- and downward movements of a stock, index or any security. It is calculated by the annualized standard deviation of the daily changes in price. We speak of “high volatility” when the stock price moves up and down rapidly over a short period. “Low volatility” means that the stock price is steady, and doesn’t change much. The stock market as a whole also has its volatility. When the size and frequency of rapid changes of the indexes are high, we speak of “high market volatility”, and when they are low, of “low market volatility”. Volatility is reflected by the CBOE Volatility Index (VIX), an indicator measured by the Chicago Board Options Exchange (CBOE).


XIV
XIV is a traditional ETN. It doesn’t (need to) hold actual VIX futures, but instead, just promises to pay the holder the returns of a VIX futures index. As a rule of thumb, XIV mirrors the movements of the VIX (hence its name): it goes up when the VIX goes down, and vice versa. Preferably, a volatility based trading strategy should trade the VIX itself. But since the VIX is not a tradable security, we (have no other option than to) base our trading strategy upon the available VIX-derivatives, such as UVXY (when VIX is expected to go up) and XIV (when VIX is expected to go down). [ISIN:US22542D7957] Click here for the XIV Fund Summary

The investment seeks to replicate, net of expenses, the inverse of the daily performance of the S&P 500 VIX Short-Term Futures index. The index was designed to provide investors with exposure to one or more maturities of futures contracts on the VIX, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. The calculation of the VIX is based on prices of put and call options on the S&P 500 Index. The ETNs are linked to the daily inverse return of the index and do not represent an investment in the inverse of the VIX.


YTD
The abbrevation ‘YTD’ literally means ‘Year To Date’. It refers to the period beginning the first day of the current calendar year up to the current date. These Dutch Guys report this return over the current year as a percentage in the column ‘YTD’ in every blogpost.


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